This is a question that arises most often because our clients are either eager to move forward in the process, are being strongly influenced by the news and their mortgage broker to immediately lock-in a low interest rate, are scared, or all of the above.
The truth is that a real estate buyer must be in tune with where they are in the process of buying a home, so that they can assess when to properly lock-in their interest rate. If you lock-in the interest rate too early, then you run the risk that any delay in the contract closing date will result in paying a rate-lock extension fee. This is unacceptable to most, but unfortunately many people are forced to deal with this reality. However, if you lock-in the interest rate too late, you may miss out on the best rate especially when rates are fluctuating on a weekly basis.
As such, we strongly recommend that a buyer consults with their attorney first and foremost as the attorneys understand the "pulse" of the transaction. Real estate attorneys understand the intricacies of a real estate transaction, and consequently, can properly assess the reality of the contract closing date. As a threshold matter, the contract closing date is simply "a target date". This means that although the closing date is indicated on the contract, it is not a firm date. Typically, closing dates are extended and fine-tuned depending on a variety of factors including:
- availability of the parties
- the buyer's lender's timing in clearing it to close
- availability of the attorneys
More importantly, however, there are certain substantive issues that may arise during the real estate transaction that may require the closing date to be delayed or pushed back. These can be a number of issues including but not limited to inspection issues, title issues, issues with the Seller vacating, and a variety of other reasons that cause the parties to fine-tune the closing date. As such, it is important for buyers to have a good "feel" for the reality of the closing date. Usually, in close consultation with their attorneys, buyers can make the right decision as to when is the right time to lock-in their mortgage interest rate.
As a very simple and general rule of thumb, you should lock-in your rate after the inspection contingency is concluded. This means that after the buyer is completed with their inspections - having resolved the issues with regards to what items may be addressed by the seller - then a buyer may lock-in their rate. This is especially true if the buyer’s attorney has confirmed that there are no known issues that could delay closing and if the information from buyer’s loan officer is approved. Most rate locks are for 30 days, but if faced with a 14 day rate lock to get an advantageous rate, then it is even more important for a buyer to understand exactly where they are in a transaction.
Purchasing a home is a daunting task, especially if it is your first time. At Abdou Law Offices, we strive to provide the best possible advice for our clients so that we can demystify the process and make it as methodical as possible. The information provided above with regards to when to lock-in your rate is an example of how we like to explain the process so that our clients can make a good decision.
Please contact Abdou Law Offices, LLC at (732) 540-8840 for more information about the contents of this blog or any of our other services
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